<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-23621
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MKS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2277512
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Six Shattuck Road, Andover, Massachusetts 01810
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 975-2350
---------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Number of shares outstanding of the issuer's common stock as of April 28, 2000:
25,013,094
<PAGE> 2
MKS INSTRUMENTS, INC.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999
Consolidated Statements of Income -
Three months ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows - Three months
ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART II OTHER INFORMATION
- ------- -----------------
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MKS INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 48,440 $ 35,714
Short-term investments .................................. 21,264 28,132
Trade accounts receivable, net .......................... 41,987 36,857
Inventories ............................................. 33,316 27,650
Deferred tax asset ...................................... 4,703 4,119
Other current assets .................................... 2,410 3,378
-------- --------
Total current assets ................................ 152,120 135,850
Property, plant and equipment, net ...................... 32,616 32,826
Goodwill, net ........................................... 7,475 --
Other assets ............................................ 6,967 5,929
-------- --------
Total assets ........................................ $199,178 $174,605
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings ................................... $ 14,070 $ 12,423
Current portion of long-term debt ....................... 7,479 7,346
Current portion of capital lease obligations ............ 1,007 1,059
Accounts payable ........................................ 11,069 7,683
Accrued compensation .................................... 6,098 9,202
Other accrued expenses .................................. 6,998 6,314
Income taxes payable .................................... 921 1,385
Distribution Payable .................................... 3,350 3,350
-------- --------
Total current liabilities ........................... 50,992 48,762
Long-term debt .............................................. 3,931 4,340
Long-term portion of capital lease obligations .............. 1,067 1,322
Deferred tax liability ...................................... 1,291 522
Other liabilities ........................................... 495 490
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred Stock, $0.01 par value, 2,000,000 shares
authorized; none issued and outstanding ............. -- --
Common Stock, no par value, 50,000,000 shares authorized;
24,981,142 and 24,632,849 issued and outstanding at
March 31, 2000 and December 31, 1999, respectively .. 113 113
Additional paid-in capital .............................. 97,567 84,713
Retained earnings ....................................... 42,497 33,166
Shareholder receivable .................................. (793) (856)
Accumulated other comprehensive income .................. 2,018 2,033
-------- --------
Total stockholders' equity .......................... 141,402 119,169
-------- --------
Total liabilities and stockholders' equity .......... $199,178 $174,605
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
MKS INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------- -------
<S> <C> <C>
Net sales ............................................ $65,556 $37,910
Cost of sales ........................................ 35,513 22,557
------- -------
Gross profit ......................................... 30,043 15,353
Research and development ............................. 4,427 2,955
Selling, general and administrative .................. 11,000 8,857
------- -------
Income from operations ............................... 14,616 3,541
Interest expense ..................................... 429 338
Interest income ...................................... 803 96
Other income (expense), net .......................... -- 168
------- -------
Income before income taxes ........................... 14,990 3,467
Provision for income taxes ........................... 5,659 338
------- -------
Net income ........................................... $ 9,331 $ 3,129
======= =======
Historical net income per share:
Basic ............................................ $ 0.38 $ 0.17
======= =======
Diluted .......................................... $ 0.36 $ 0.16
======= =======
Historical weighted average common shares outstanding:
Basic ............................................ 24,793 18,054
======= =======
Diluted .......................................... 26,124 19,402
======= =======
Pro forma data for 1999:
Historical income before income taxes ............ $ 3,467
Pro forma provision for income taxes assuming C
corporation tax .............................. 1,317
-------
Pro forma net income ............................. $ 2,150
=======
Pro forma net income per share:
Basic ............................................ $ 0.12
=======
Diluted .......................................... $ 0.11
=======
Pro forma weighted average common shares outstanding:
Basic ............................................ 18,054
=======
Diluted .......................................... 18,890
=======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
MKS INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 9,331 $ 3,129
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .............................. 1,740 1,536
Loss (gain) on disposal of property, plant and equipment ... 10 (126)
Other ...................................................... (408) (7)
Forward exchange contract loss realized .................... -- 9
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable ........ (5,182) (4,504)
(Increase) decrease in inventories ...................... (5,740) (222)
(Increase) decrease in other current assets ............. (781) 121
Increase (decrease) in accrued expenses and other current
liabilities ......................................... 2,081 860
Increase (decrease) in accounts payable ................. 3,296 2,390
------- -------
Net cash provided by operating activities ...................... 4,347 3,186
------- -------
Cash flows from investing activities:
Proceeds from sales of investments ......................... 7,429 --
Purchases of property, plant and equipment ................. (1,486) (1,048)
(Increase) decrease in other assets......................... 361 (86)
Cash used to settle forward exchange contracts ............. -- (9)
------- -------
Net cash provided by (used in) investing activities ............ 6,304 (1,143)
------- -------
Cash flows from financing activities:
Proceeds from short-term borrowings ........................ 1,670 993
Payments on short-term borrowings .......................... -- (978)
Principal payments on long-term debt ....................... (514) (512)
Deferred initial public offering costs ..................... -- (282)
Proceeds from exercise of stock options .................... 1,138 --
Principal payments under capital lease obligations ......... (308) (252)
------- -------
Net cash provided by (used in) financing activities ............ 1,986 (1,031)
------- -------
Effect of exchange rate changes on cash and cash equivalents ... 89 (241)
------- -------
Increase in cash and cash equivalents .......................... 12,726 771
Cash and cash equivalents at beginning of period ............... 35,714 11,188
------- -------
Cash and cash equivalents at end of period ..................... $48,440 $11,959
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................ $ 267 $ 305
======= =======
Income taxes ............................................ $ 1,631 $ 335
======= =======
Noncash transactions during the period:
Stock issued in acquisition of Compact Instrument ....... $ 8,433 $ --
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands, except per share data)
1) BASIS OF PRESENTATION
The interim financial data as of March 31, 2000 and for the three
months ended March 31, 2000 and 1999 is unaudited; however, in the
opinion of MKS Instruments, Inc. ("MKS" or the "Company"), the interim
data includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the
interim periods. The unaudited financial statements presented herein
have been prepared in accordance with the instructions to Form 10-Q and
do not include all the information and note disclosures required by
generally accepted accounting principles. The financial statements
should be read in conjunction with the December 31, 1999 audited
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission
on March 30, 2000.
2) NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition". SAB 101
summarizes the staff's view in applying generally accepted accounting
principles to revenue recognition. The application of the guidance in
SAB 101 will be required in the Company's second quarter of the fiscal
year 2000. The effect of applying this guidance, if any, will be
reported as a cumulative effect adjustment resulting from a change in
accounting principle. The Company is currently in the process of
evaluating the impact that SAB 101 will have on its financial position
or results of operations.
3) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
4) CASH AND CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Cash and Money Market Instruments $28,725 $22,156
Commercial Paper 6,919 5,558
Federal Government and Government Agency Obligations 11,500 6,000
Corporate Obligations 1,296 2,000
------- -------
$48,440 $35,714
======= =======
</TABLE>
Short-term available-for-sale investments maturing within one year consist of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Federal Government and Government Agency Obligations $13,253 $16,245
Corporate Obligations 2,999 5,501
Commercial Paper 3,424 4,641
Equity Securities 1,588 1,745
------- -------
$21,264 $28,132
======= =======
</TABLE>
<PAGE> 7
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
Long-term available-for-sale investments maturing within two years consist of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Federal Government and Government Agency Obligations $592 $1,063
==== ======
</TABLE>
5) HISTORICAL AND PRO FORMA NET INCOME PER SHARE
Historical net income per share is not meaningful in 1999 because of
the Company's conversion from an S corporation to a C corporation in
April, 1999 upon the closing of its initial public offering. For the
three months ended March 31, 1999, historical net income has been
adjusted for the pro forma provision for income taxes calculated
assuming the Company was subject to income taxation as a C corporation.
The following is a reconciliation of basic to diluted historical and
pro forma net income per share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---------- ------------------------
HISTORICAL PRO FORMA HISTORICAL
---------- --------- ----------
<S> <C> <C> <C>
Net income ............................ $ 9,331 $ 2,150 $ 3,129
Shares used in net income per common
share-basic ....................... 24,793 18,054 18,054
Effect of dilutive securities:
Employee and director stock options 1,331 836 1,348
------- ------- -------
Shares used in net income per common
share-diluted ..................... 26,124 18,890 19,402
======= ======= =======
Net income per common share-basic ..... $ 0.38 $ 0.12 $ 0.17
======= ======= =======
Net income per common share-diluted ... $ 0.36 $ 0.11 $ 0.16
======= ======= =======
</TABLE>
For purposes of computing diluted earnings per share, weighted average
common share equivalents do not include stock options with an exercise
price greater than the average market price of the common shares during
the period. Options to purchase 10,955 and 24,000 shares of common
stock were outstanding during the three months ended March 31, 2000 and
1999, respectively, but were not included in the calculation of diluted
net income per common share because the option price was greater than
the average market price of the common shares during the period.
6) INVENTORIES
Inventories consist of the following:
<TABLE>
March 31, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Raw material ..... $ 7,150 $ 6,644
Work in process .. 8,441 7,026
Finished goods.... 17,725 13,980
------- -------
$33,316 $27,650
======= =======
</TABLE>
<PAGE> 8
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
7) STOCKHOLDERS' EQUITY
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------ ------
<S> <C> <C>
Net income ............................................. $9,331 $3,129
Other comprehensive income, net of taxes:
Changes in value of financial instruments designated
as hedges of currency and interest rate exposures 192 --
Foreign currency translation adjustment ............ (105) (567)
Unrealized gain (loss) on investments .............. (102) 119
------ ------
Other comprehensive income, net of taxes ............... (15) (448)
------ ------
Total comprehensive income ............................. $9,316 $2,681
====== ======
</TABLE>
8) SEGMENT INFORMATION AND SIGNIFICANT CUSTOMER
Segment Information for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
NORTH AMERICA FAR EAST EUROPE TOTAL
------------- -------- ------ -----
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers 2000 $45,406 $13,977 $6,173 $65,556
1999 26,133 7,089 4,688 37,910
Intersegment net sales 2000 $14,212 $371 $298 $14,881
1999 6,841 132 168 7,141
Income from operations 2000 $12,427 $1,363 $826 $14,616
1999 2,857 292 392 3,541
</TABLE>
The Company had one customer comprising 25% and 20% of net sales for
the three months ended March 31, 2000 and 1999, respectively.
9) COMMITMENTS AND CONTINGENCIES
Prior to its initial public offering, the Company entered into a Tax
Indemnification and S Corporation Distribution Agreement with its then
existing stockholders (the "Pre-IPO stockholders"). The agreement
includes provisions for the payment, with interest, by the pre-IPO
stockholders or MKS, as the case may be, for the difference between the
$40,000,000 distributed as an estimate of the amount of the accumulated
adjustments account as of April 4, 1999, which is the date the
Company's S Corporation status was terminated, and the actual amount of
the accumulated adjustments account on that day. The actual amount of
the accumulated adjustments account cannot be determined until MKS
calculates the amount of its taxable income for the year ending
December 31, 1999. Based on the Company's estimate of the taxable
income for the year ending December 31, 1999, MKS believes that an
additional future distribution to the Pre-IPO stockholders will be
required under this agreement. The amount of the additional
distribution, prior to interest, is currently estimated to be
$3,350,000. The amount of the additional distribution payable was
charged directly to retained earnings during 1999 and had no impact on
net income or earnings per share. The amount of the accumulated
adjustments account can be affected by income tax audits of MKS. If any
audit increases or decreases the accumulated adjustments account, MKS
or the Pre-IPO stockholders, as the case may be, will also be
<PAGE> 9
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
required to make a payment with interest, of such difference to the
other party. No shareholders, other than the Pre-IPO stockholders, are
parties to the Tax Indemnification and S Corporation Distribution
Agreement.
10) ACQUISITION
On March 10, 2000 the Company acquired Compact Instrument Technology,
LLC ("Compact Instrument"), a start-up company with proprietary
technology in process monitoring for semiconductor manufacturing and
other manufacturing processes. The acquisition has been accounted for
by the purchase method of accounting. The purchase price was $8,700,000
and consisted of $8,400,000 in stock and $300,000 in assumed net
liabilities. The purchase price was allocated to the assets acquired
based upon their estimated fair values. This allocation resulted in
goodwill of $7,600,000 and acquired technology of $1,600,000, which are
being amortized on a straight-line basis over 5 years and 3 years,
respectively. The acquired technology is included in "Other assets" in
the accompanying balance sheet.
The following unaudited pro forma information for the three months
ended March 31, 2000 presents a summary of the results of operations of
the Company as if the acquisition had occurred at the beginning of the
period.
<TABLE>
<S> <C>
Net sales.................................... $65,556
Net income................................... $ 8,933
Net income per share:
Basic.................................... $ 0.36
Diluted.................................. $ 0.34
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition
occurred at the beginning of the period, or which may result in the
future. The pro forma results for the three months ended March 31, 1999
are not presented as Compact Instrument was not organized until April
28, 1999.
<PAGE> 10
ITEM 2.
MKS INSTRUMENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains a number of statements, including,
without limitation, statements relating to MKS's beliefs, expectations and plans
which are forward-looking statements, as are statements that certain actions,
conditions or circumstances will continue. Such statements are based upon
management's current expectations and are subject to a number of factors and
uncertainties. Information contained in these forward-looking statements is
inherently uncertain and actual performance and results may differ materially
due to many important factors. See "Factors That May Affect Future Operating
Results" for factors that could cause actual results to differ materially from
any forward-looking statements made by MKS. The terms "MKS", "we", "us" and
"our" refer to MKS Instruments, Inc.
MKS develops, manufactures and supplies instruments, components and integrated
subsystems used to measure, control and analyze gases in semiconductor
manufacturing and similar industrial manufacturing processes. We sold products
to over 4,000 customers in 1999. We estimate that during 1999 approximately 66%
of our net sales were to semiconductor capital equipment manufacturers and
semiconductor device manufacturers. The following table sets forth for the
periods indicated the percentage of total net sales of certain line items
included in MKS's consolidated statement of income data.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----- -----
<S> <C> <C>
Net sales ............................... 100.0% 100.0%
Cost of sales ........................... 54.2 59.5
----- -----
Gross profit ............................ 45.8 40.5
Research and development ................ 6.7 7.8
Selling, general and administrative ..... 16.8 23.4
----- -----
Income from operations .................. 22.3 9.3
Interest income (expense), net .......... 0.6 (0.6)
Other income, net ....................... -- 0.4
----- -----
Income before income taxes .............. 22.9 9.1
Provision for income taxes .............. 8.7 0.8
Non-recurring deferred tax credit ....... -- --
----- -----
Net income .............................. 14.2% 8.3%
===== =====
Pro form data for 1999:
Historical income before income taxes 9.1%
Pro forma provision for income taxes 3.4
---
Pro forma net income ................ 5.7%
===
</TABLE>
<PAGE> 11
Results of Operations
Net Sales. Net sales increased 72.9% to $65.6 million for the three
months ended March 31, 2000 from $37.9 million for the three months ended March
31, 1999. International net sales were approximately $20.2 million for the three
months ended March 31, 2000 or 30.7% of net sales and $11.8 million for the
three months ended March 31, 1999 or 31.1% of net sales. The increase in net
sales was due to increased worldwide sales volume of MKS's existing products
which resulted primarily from increased sales to the Company's semiconductor
capital equipment manufacturer and semiconductor device manufacturer customers.
Gross Profit. Gross profit as a percentage of net sales increased to
45.8% for the three months ended March 31, 2000 from 40.5% for the three months
ended March 31, 1999. The increase was primarily due to fuller utilization of
existing manufacturing capacity as a result of increased net sales and other
manufacturing efficiencies.
Research and Development. Research and development expense increased
49.8% to $4.4 million or 6.7% of net sales for the three months ended March 31,
2000 from $3.0 million or 7.8% of net sales for the three months ended March 31,
1999 due to increased spending of $0.9 for compensation and increased expenses
for development materials related to projects in process.
Selling, General and Administrative. Selling, general and
administrative expenses increased 24.2% to $11.0 million or 16.8% of net sales
for the three months ended March 31, 2000 from $8.9 million or 23.4% of net
sales for the three months ended March 31, 1999. The increase was due primarily
to increased compensation expense of $1.0 million, increased professional fees
of $0.4 million, and other general and administrative expenses.
Interest Income (Expense), Net. During the three months ended March 31,
2000, the Company generated interest income of $0.8 million primarily from the
invested net proceeds of our initial public offering, offset by interest expense
on outstanding debt. Net interest expense for the three months ended March 31,
1999 represents interest on outstanding loans, offset by interest income earned
on cash and cash equivalents and short-term investments.
Other Income (Expense), Net. Other income of $0.2 million in the three
months ended March 31, 1999 primarily represents gains recorded from foreign
exchange contracts which did not qualify for hedge accounting.
Effective April 1, 1999 MKS adopted Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. The adoption of SFAS No. 133 did not have a
material impact on our financial position or results of operations. The
derivative instruments currently held by us which have been designated as
hedges, including forward exchange contracts, local currency purchased options,
and an interest rate swap, qualify for hedge accounting under SFAS No. 133, and
changes in their fair value will be recorded as a component of other
comprehensive income until the hedged transaction occurs.
Provision for Income Taxes. Prior to the closing of its initial public
offering in April, 1999 MKS was treated as an S corporation for tax purposes. As
an S corporation, MKS was not subject to federal, and certain state, income
taxes. Upon the closing of our initial public offering on April 5, 1999, our
status as an S corporation was terminated and we became subject to taxes as a C
corporation. The pro forma provision for income taxes in 1999 reflects the
estimated tax expense MKS would have incurred had it been subject to federal and
state income taxes as a C corporation.
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
MKS has financed its operations and capital requirements through a combination
of cash provided by operations, long-term real estate financing, capital lease
financing and short-term lines of credit.
Operations provided cash of $4.3 million for the three months ended March 31,
2000 primarily impacted by net income, depreciation and changes in the levels of
accounts payable, accrued expenses, inventories and accounts receivable.
Investing activities generated cash of $6.3 million for the three months ended
March 31, 2000 primarily from selling short-term investments offset by the
purchase of property and equipment. Financing activities provided cash of $2.0
million primarily from short-term borrowings and employees exercising stock
options.
Working capital was $101.1 million as of March 31, 2000, an increase of $14.0
million from December 31, 1999. MKS has a combined $30.0 million line of credit
with two banks, expiring December 31, 2000, all of which is available.
Prior to our initial public offering, we entered into a Tax Indemnification and
S Corporation Distribution Agreement with our then existing stockholders. The
agreement includes provisions for the payment, with interest, by those
stockholders or MKS, as the case may be, for the difference between the $40
million distributed as an estimate of the amount of the accumulated adjustments
account as of April 4, 1999, which is the date our S corporation status was
terminated, and the actual amount of the accumulated adjustments account on that
day. The actual amount of the accumulated adjustments account cannot be
determined until we calculate the amount of our taxable income for the year
ending December 31, 1999. Based on our estimate of the taxable income for the
year ending December 31, 1999, we believe that an additional distribution to the
then existing stockholders will be required under this agreement. The amount of
the additional distribution, prior to interest, is currently estimated to be
$3.4 million. The amount of the additional distribution payable was charged
directly to retained earnings during 1999 and had no impact on net income or
earnings per share. The amount of the accumulated adjustments account can be
affected by income tax audits of MKS. If any audit increases or decreases the
accumulated adjustments account, MKS or the then existing stockholders, as the
case may be, will also be required to make a payment with interest, of such
difference to the other party. No stockholders, other than the then existing
stockholders, are parties to the Tax Indemnification and S Corporation
Distribution Agreement.
MKS believes that the net proceeds from its initial public offering, together
with the cash anticipated to be generated from operations and funds available
from existing credit facilities, will be sufficient to satisfy its estimated
working capital and planned capital expenditure requirements through at least
the next 24 months.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 2 of Notes to Consolidated Financial Statements for a discussion of the
impact of recently issued accounting pronouncements.
YEAR 2000 COMPLIANCE
The Year 2000 problem stems from the fact that many currently installed
computer systems include software and hardware products that are unable to
distinguish 21st century dates from those in the 20th century. As a result,
computer software and/or hardware used by many companies and governmental
agencies may need to be upgraded to comply with Year 2000 requirements or risk
system failure or miscalculations causing disruptions to normal business
activities. To date, we have experienced no material year 2000 problems with our
internal computer software and hardware, products, facilities and manufacturing
equipment or third party goods, services and interfaces.
<PAGE> 13
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Cyclicality of the Semiconductor Industry
We estimate that approximately 66% of our sales during 1999 were to
semiconductor capital equipment manufacturers and semiconductor device
manufacturers, and we expect that sales to such customers will continue to
account for a substantial majority of our sales. Our business depends upon the
capital expenditures of semiconductor device manufacturers, which in turn depend
upon the demand for semiconductors. Periodic reductions in demand for the
products manufactured by semiconductor capital equipment manufacturers and
semiconductor device manufacturers may adversely affect our business, financial
condition and results of operations. Historically, the semiconductor market has
been highly cyclical and has experienced periods of overcapacity, resulting in
significantly reduced demand for capital equipment. For example, in 1996 and
1998, the semiconductor capital equipment industry experienced significant
declines, which caused a number of our customers to reduce their orders. We
cannot be certain that semiconductor downturns will not recur. A decline in the
level of orders as a result of any future downturn or slowdown in the
semiconductor capital equipment industry could have a material adverse effect on
our business, financial condition and results of operations.
Fluctuations in Operating Results
A substantial portion of our shipments occur shortly after an order is
received and therefore we operate with a low level of backlog. As a consequence
of the just-in-time nature of shipments and the low level of backlog, a decrease
in demand for our products from one or more customers could occur with limited
advance notice and could have a material adverse effect on our results of
operations in any particular period.
A significant percentage of our expenses are relatively fixed and based
in part on expectations of future net sales. The inability to adjust spending
quickly enough to compensate for any shortfall would magnify the adverse impact
of a shortfall in net sales on our results of operations. Factors that could
cause fluctuations in our net sales include:
- the timing of the receipt of orders from major customers;
- shipment delays;
- disruption in sources of supply;
- seasonal variations of capital spending by customers;
- production capacity constraints; and
- specific features requested by customers.
For example, we were in the process of increasing our production
capacity when the semiconductor capital equipment market began to experience a
significant downturn in 1996. This downturn had a material adverse effect on our
operating results in the second half of 1996 and the first half of 1997. After
an increase in business in the latter half of 1997, the market experienced
another downturn in 1998, which had a material adverse effect on our 1998 and
first quarter 1999 operating results. As a result of the factors discussed
above, it is likely that we will in the future experience quarterly or annual
fluctuations and that, in one or more future quarters, our operating results
will fall below the expectations of public market analysts or investors. In any
such event, the price of our common stock could decline significantly.
<PAGE> 14
Customer Concentration
Our five largest customers accounted for approximately 33% of our net
sales in 1999 and 24% of our net sales in 1998. The loss of a major customer or
any reduction in orders by these customers, including reductions due to market
or competitive conditions, would likely have a material adverse effect on our
business, financial condition and results of operations. During 1999, one
customer, Applied Materials, accounted for approximately 22% of our net sales.
While we have entered into a purchase contract with Applied Materials that
expires in 2000 unless it is extended by mutual agreement, none of our
significant customers, including Applied Materials, has entered into an
agreement requiring it to purchase any minimum quantity of our products. The
demand for our products from our semiconductor capital equipment customers
depends in part on orders received by them from their semiconductor device
manufacturer customers.
Attempts to lessen the adverse effect of any loss or reduction through
the rapid addition of new customers could be difficult because prospective
customers typically require lengthy qualification periods prior to placing
volume orders with a new supplier. Our future success will continue to depend
upon:
- our ability to maintain relationships with existing key customers;
- our ability to attract new customers; and
- the success of our customers in creating demand for their capital
equipment products which incorporate our products.
Competition
The markets for our products are highly competitive. Our competitive
success often depends upon factors outside of our control. For example, in some
cases, particularly with respect to mass flow controllers, semiconductor device
manufacturers may direct semiconductor capital equipment manufacturers to use a
specified supplier's product in their equipment. Accordingly, for such products,
our success will depend in part on our ability to have semiconductor device
manufacturers specify that our products be used at their semiconductor
fabrication facilities. In addition, we may encounter difficulties in changing
established relationships of competitors that already have a large installed
base of products within such semiconductor fabrication facilities.
Technological Changes
New products designed by semiconductor capital equipment manufacturers
typically have a lifespan of five to ten years. Our success depends on our
products being designed into new generations of equipment for the semiconductor
industry. We must develop products that are technologically current so that they
are positioned to be chosen for use in each successive new generation of
semiconductor capital equipment. If our products are not chosen by our
customers, our net sales may be reduced during the lifespan of our customers'
products.
Expansion of Manufacturing Capacity
Our ability to increase sales of certain products depends in part upon
our ability to expand our manufacturing capacity for such products in a timely
manner. If we are unable to expand our manufacturing capacity on a timely basis
or to manage such expansion effectively, our customers could implement our
competitor's products and, as a result, our market share could be reduced.
Because the semiconductor industry is subject to rapid demand shifts which are
difficult to foresee, we may not be able to increase capacity quickly enough to
respond to a rapid increase in demand in the semiconductor industry.
<PAGE> 15
Additionally, capacity expansion could increase our fixed operating expenses and
if sales levels do not increase to offset the additional expense levels
associated with any such expansion, our business, financial condition and
results of operations could be materially adversely affected.
International Operations and Sales
International sales, which include sales by our foreign subsidiaries,
but exclude direct export sales which were less than 10% of our total net sales,
accounted for approximately 31% of net sales in 1999 and 32% of net sales in
1998. We anticipate that international sales will continue to account for a
significant portion of our net sales. In addition, certain of our key domestic
customers derive a significant portion of their revenues from sales in
international markets. Therefore, our sales and results of operations could be
adversely affected by economic slowdowns and other risks associated with
international sales.
Exchange rate fluctuations could have an adverse effect on our net sales and
results of operations and we could experience losses with respect to our hedging
activities. Unfavorable currency fluctuations could require us to increase
prices to foreign customers which could result in lower net sales by us to such
customers. Alternatively, if we do not adjust the prices for our products in
response to unfavorable currency fluctuations, our results of operations could
be adversely affected. In addition, sales made by our foreign subsidiaries are
denominated in the currency of the country in which these products are sold and
the currency we receive in payment for such sales could be less valuable at the
time of receipt as a result of exchange rate fluctuations. We enter into forward
exchange contracts and local currency purchased options to reduce currency
exposure arising from intercompany sales of inventory. However, we cannot be
certain that our efforts will be adequate to protect us against significant
currency fluctuations or that such efforts will not expose us to additional
exchange rate risks.
Need to Retain and Attract Key Employees
Our success depends to a large extent upon the efforts and abilities of
a number of key employees and officers, particularly those with expertise in the
semiconductor manufacturing and similar industrial manufacturing industries. The
loss of key employees or officers could have a material adverse effect on our
business, financial condition and results of operations. We believe that our
future success will depend in part on our ability to attract and retain highly
skilled technical, financial, managerial and marketing personnel. Competition
for such personnel is intense, and we cannot be certain that we will be
successful in attracting and retaining such personnel.
Intellectual Property Matters
Although we seek to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, we cannot be certain
that:
- we will be able to protect our technology adequately;
- competitors will not be able to develop similar technology
independently;
- any of our pending patent applications will be issued;
- intellectual property laws will protect our intellectual property
rights; or
- third parties will not assert that our products infringe patent,
copyright or trade secrets of such parties.
<PAGE> 16
Litigation may be necessary in order to enforce our patents, copyrights or other
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on our business,
financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning market risk is contained in the annual Management's
Discussion and Analysis of Financial Condition and Results of Operations in
MKS's Annual Report on Form 10-K for the year ended December 31, 1999, which was
filed with the Securities and Exchange Commission on March 30, 2000. There were
no material changes in MKS's exposure to market risk from December 31, 1999.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MKS is not aware of any material legal proceedings to which it or any of its
subsidiaries is a party.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of Proceeds from Sales of Registered Securities. There has been no
change to the information previously provided by the Company on Form 10-Q
for the period ended March 31, 1999 relating to the securities sold by the
Company pursuant to the Registration Statement on Form S-1 (Reg. No.
333-71363) that was declared effective by the Securities and Exchange
Commission on March 29, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Ex. No. Description
10.31 Employment Agreement
27 Financial Data Schedule
<PAGE> 17
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
on Form 10-Q is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MKS INSTRUMENTS, INC.
May 11, 2000 By: /s/ Ronald C. Weigner
--------------------------------------
Ronald C. Weigner
Vice President and Chief Financial Officer
(Principal Financial Officer)
<PAGE> 1
Exhibit 10.31
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated March 10, 2000 ("Employment Agreement") by and
between MKS Instruments, Inc., a Massachusetts corporation (the "Corporation"),
and Donald Smith of Belmont, MA (the "Employee").
WHEREAS, the Corporation and the Employee desire to provide for the employment
of the Employee by the Corporation:
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, the Corporation and the Employee hereby agree as follows:
(1) TERM OF EMPLOYMENT: The Corporation hereby employs the Employee, and
the Employee hereby accepts employment with the Corporation, for a period
commencing as of March 10, 2000 and continuing from month to month thereafter
until terminated as provided in this Section (1). The Corporation may terminate
the employment of the Employee under this Employment Agreement at any time after
September 10, 2000 by giving written notice to the Employee stating its election
to terminate the employment of the Employee under this Employment Agreement. The
employment of the Employee under this Employment Agreement shall terminate six
(6) months after the date of receipt by the Employee of such notice; provided,
however, that the employment of the Employee under this Employment Agreement is
subject to prior termination as hereinafter provided in Section (5). The
Employee may terminate his employment with the Corporation under this Employment
Agreement at any time after September 10, 2000 by giving written notice to the
Corporation stating his election to terminate his employment under this
Employment Agreement, provided, however, that the employment of the Employee
under this Employment Agreement is subject to prior termination as hereinafter
provided in Section (5).
The employment of the employee under this Employment Agreement shall terminate
between twelve (12) and six (6) months after the date of receipt by the
Corporation of such notice as set forth below:
IF NOTICE IS RECEIVED BY THE DATE OF TERMINATION OF
CORPORATION: EMPLOYMENT OF EMPLOYEE:
- -------------------------------- --------------------------------------
Between September 10, 2000 Twelve (12) months after date of receipt
and October 9, 2000 of written notice by Corporation
<PAGE> 2
Between October 10, 2000 and Eleven (11) months after date of receipt
November 9, 2000 of written notice by Corporation.
Between November 10, 2000 and Ten (10) months after date of receipt of
December 9, 2000 written notice by Corporation
Between December 10, 2000 and Nine (9) months after date of receipt of
January 9, 2001 written notice by Corporation
Between January 10, 2001 and Eight (8) months after date of receipt of
February 9, 2001 written notice by Corporation
Between February 10, 200l and Seven (7) months after date of receipt of
March 9, 2001. written notice by Corporation
Anytime on or after March 10, 2001 Six (6) months after date of receipt of
written notice by Corporation
(2) CAPACITY: The Employee shall be employed by the Corporation in the
position of Vice President and Chief Technical Officer and shall perform such
duties as shall be assigned to Employee by the President and Chief Operating
Officer of the Corporation, or his designee.
(3) EXTENT OF SERVICES: During the term of employment of the Employee under
this Employment Agreement, the Employee shall devote his full time to, and use
his best efforts in the furtherance of, the business of the Corporation and
shall not engage in any other business activity which interferes in any way with
the Employee's performance of his duties to the Corporation, whether or not such
business activity is pursued for gain or any other pecuniary advantage, without
the prior written consent of the Corporation.
(4) COMPENSATION: In consideration of the services to be rendered by the
Employee under this Employment Agreement, the Corporation agrees to pay, and the
Employee agrees to accept, the following compensation:
(a) BASE SALARY: A base salary at the rate of $150,000 per year for
the term of employment of the Employee under this Employment Agreement. The base
salary shall be payable in equal biweekly installments subject to usual
withholding requirements. This salary will be reviewed annually according to the
established practices of the company. No overtime pay will be paid to the
Employee by the Corporation.
Page 2
<PAGE> 3
(b) INCENTIVE: For each calendar year of the corporation during the
term of employment of the Employee under this Employment Agreement, the Employee
shall be entitled to participate in a Management Incentive Program pursuant to
the terms of which the Employee may receive compensation in addition to his base
salary if the Corporation attains its consolidated financial goals during such
calendar year of the Corporation. The "targeted" additional compensation goal
for the Employee shall be 40% of his earnings. The Management Incentive Program,
including the consolidated financial goals established by the Corporation for
the calendar year and the formula to be used to determine the payment of amounts
under the Management Incentive Program, will be communicated to the Employee in
writing prior to the beginning of each calendar year of the Corporation.
If there shall be any disagreement between the Corporation and the
Employee as to the calculation of the Management Incentive Bonus in any calendar
year of the Corporation during the term of employment of the Employee under this
Employment Agreement, the decision of the independent Public Accounting firm of
the corporation as to the amount of the Management Incentive Bonus of the
Corporation shall be conclusive and binding on the corporation and the Employee.
The Employee shall be entitled to inspect any certificate of such independent
public accounting firm as to the calculation of the Management Incentive Bonus
of the Corporation in any calendar year of the Corporation during the term of
employment of the Employee under this Employment Agreement.
Incentive payments shall be payable to the Employee on or before March
31 after the end of each calendar year of the Corporation during the term of
employment of the Employee under this Employment Agreement.
The Employee will not receive any payment under the Management
Incentive Program for any calendar year in which the Employee is not actively
employed on the last day of that calendar year, but the Employee need not be
actively employed at the time the payment is actually made.
(c) MKS INSTRUMENTS PROFIT SHARING AND RETIREMENT SAVINGS PLAN:
The Employee shall be eligible to become a participant under the profit sharing
plan of the Corporation on fulfilling the conditions set forth in the MKS
Instruments Profit Sharing and Retirement Savings Plan of the Corporation.
(d) VACATION: The Employee shall be entitled to an annual vacation
leave of 20 days at full pay during each year of this Employment Agreement,
subject to the Employee arranging such vacation so as not to affect adversely
the ability of the Corporation to transact its necessary business. Vacation
shall accrue at the rate of 13.33 hours per month.
Page3
<PAGE> 4
(e) LIFE INSURANCE: The Corporation shall provide, and pay all of the
premiums for, term life insurance in the amount of $250,000 for the Employee
during the term of employment of the Employee under this Employment Agreement in
accordance with the term life insurance plan of the Corporation.
(f) MEDICAL/DENTAL INSURANCE: The Corporation shall provide group
medical/dental insurance for the Employee and his eligible family members under
the Plans of the Corporation applicable to the Employee during the term of
employment of the Employee under this Employment Agreement. In addition, the
Corporation shall provide to the Employee a supplemental medical/dental plan
that will reimburse the Employee for the cost of any medically necessary
services not paid under the primary medical/dental insurance plans, subject to
an annual limit of $2,500.
(g) OTHER BENEFITS: The Corporation shall provide other benefits for
the employee under the Plans of the Corporation applicable to the Employee
during the term of employment of the Employee under this Employment Agreement.
(5) TERMINATION: The employment of the Employee under this Employment
Agreement shall terminate:
(a) On the expiration of the period of employment as provided in
Section (1).
(b) Upon the death of the Employee.
(c) At the election of the Corporation (i) if the Employee shall fail,
or refuse, to perform the services required of him under this Employment
Agreement, or (ii) if the Employee shall fail, or refuse, to perform the other
covenants and agreements required of him under this Employment Agreement, or
(iii) "for cause", which term shall mean acts or actions detrimental to the best
interests of the Corporation.
(6) PAYMENT UPON TERMINATION:
(a) If the employment of the Employee is terminated on the expiration
of the period of employment as provided in Section (1), the Employee shall not
be entitled to any compensation, and the Corporation shall have no obligation to
pay the employee any compensation, except as is provided in this Employment
Agreement.
Page 4
<PAGE> 5
(b) If the employment of the Employee is terminated by death, the
Corporation shall pay to the estate of the Employee the compensation which would
otherwise be payable to the Employee at the end of the month in which his death
occurs.
(c) In the event the employment of the Employee is terminated at the
election of the Corporation pursuant to Section (5) (c) hereof, the Employee
shall only be entitled to his base salary through the last day of actual
employment or the date of termination, whichever is earlier.
(7) TRADE SECRETS: The Employee covenants and agrees that he will
communicate to the Corporation, and will not divulge or communicate to any
other person, partnership, corporation or other entity without the prior written
consent of the Corporation, any trade secrets of the Corporation or confidential
information relating to the business of the Corporation or any one connected
with the Corporation, and that such trade secrets and confidential information
shall not be used by the Employee either on his own behalf or for the benefit of
others or disclosed by the Employee to any one, except to the Corporation,
during or after the term of employment of the Employee under this Employment
Agreement.
(8) INVENTIONS AND PATENTS:
(a) The Employee shall make prompt full disclosure in writing to the
Corporation of all inventions, improvements and discoveries, whether or not
patentable, which the Employee conceives, devises, makes, discovers, develops,
perfects or first reduces to practice, either alone or jointly with others,
during the term of employment of the Employee under this Employment Agreement,
which relate in any way to the fields, products or business of the Corporation,
including development and research, whether during or out of the usual hours of
work or on or off the premises of the Corporation or by use of the facilities of
the Corporation or otherwise and whether at the request or suggestion of the
Corporation or otherwise (all such inventions, improvements and discoveries
being hereinafter called the "Inventions"), including any Inventions, whether or
not patentable, conceived, devised, made, discovered, developed, perfected or
first reduced to practice by the Employee after the employment of the Employee
under this Employment Agreement is terminated if the Inventions were conceived
by the Employee during the term of employment of the Employee under this
Employment Agreement. Any Inventions, whether or not patentable which relate in
any way to the fields, products or business of the Corporation, conceived,
devised, made, discovered, developed, perfected or first reduced to practice by
the Employee within six (6) months of the date termination of the
Page 5
<PAGE> 6
employment of the Employee under this Employment Agreement shall be conclusively
presumed to have been conceived during the term of employment of the Employee
under this Employment Agreement.
(b) The Employee agrees that the Inventions shall be the sole and
exclusive property of the Corporation.
(c) The Employee agrees to assist the Corporation and its nominees in
every reasonable way (entirely at its or their expense) to obtain for the
benefit of the Corporation letters patent for the Inventions and trademarks,
trade names and copyrights relating to the Inventions, and any renewals,
extensions or reissues thereof, in any and all countries, and agrees to make,
execute, acknowledge and deliver, at the request of the Corporation, all written
applications for letters patent, trademarks, trade names and copyrights relating
to the Inventions and any renewals, extensions or reissues thereof, in any and
all countries, and all documents with respect thereto, and all powers of
attorney relating thereto and, without further compensation, to assign to the
Corporation or its nominee all the right, title and interest of the Employee in
and to such applications and to any patents, trademarks, trade names or
copyrights which shall thereafter issue on any such applications, and to
execute, acknowledge and deliver all other documents deemed necessary by the
Corporation to transfer to or vest in the Corporation all of the right, title
and interest of the Employee in and to the Inventions, and to such trademarks,
trade names, patents and copyrights together with exclusive rights to make, use,
license and sell them throughout the world.
(d) The Employee agrees that even though his employment is terminated
under this Employment Agreement he will, at any time after such termination of
employment, carry out and perform all of the agreements of Subsections (8) (a)
and (8) (c) above, and will at any time and at all times cooperate with the
Corporation in the prosecution and/or defense of any litigation which may arise
in connection with the Inventions, provided, however, that should such services
be rendered after termination of employment of the Employee under this
Employment Agreement, the Employee shall be paid reasonable compensation on a
per diem basis.
(e) The Employee agrees to make and maintain adequate and current
written records of all Inventions in the form of notes, sketches, drawings, or
reports relating thereto, which records shall be and remain the property of, and
available to, the Corporation at all times.
page 6
<PAGE> 7
(f) The Employee agrees that he will, upon leaving the employment of
the Corporation, promptly deliver to the Corporation all originals and copies of
disclosures, drawings, prints, letters, notes, and reports either typed,
handwritten or otherwise memorialized, belonging to the Corporation which are
in his possession or under his control and the Employee agrees that he will not
retain or give away or make copies of the originals or copies of any such
disclosures, drawings, prints, letters, notes or reports.
(9) PROPERTY OF CORPORATION: All files, records, reports, documents,
drawings, specifications, equipment, and similar items relating to the business
of the Corporation, whether prepared by the Employee or otherwise coming into
his possession, shall remain the exclusive property of the Corporation and
shall not be removed by the Employee from the premises of the Corporation under
any circumstances whatsoever without the prior written consent of the
Corporation. Provided, however, the Employee may remove such files and other
items from the premises of the Corporation if required to do so during the
course of his duties or if required to work at home.
(10) NON-COMPETITION:
(a) During the term of employment of the Employee under this
Employment Agreement, and during a period of one (1) year after termination of
employment of the Employee under this Employment Agreement without regard to the
cause of termination of employment and whether or not such termination of
employment was caused by the Employee or by the Corporation, (i) the Employee
shall not engage, either directly or indirectly, in any manner or capacity, in
any business or activity which is competitive with any business or activity
conducted by the Corporation; (ii) the Employee shall not work for or employ,
directly or indirectly, or cause to be employed by another, any person who was
an employee, officer or agent of the Corporation or of any of its subsidiaries
at any time during a period of twelve (12) months prior to the termination of
the employment of the Employee under this Employment Agreement nor shall the
Employee form any partnership with, or establish any business venture in
cooperation with, any such person which is competitive with any business or
activity of the Corporation; (iii) the Employee shall not give, sell or lease
any goods or services competitive with the goods or services of the Corporation
or its subsidiaries to any person, partnership, corporation or other entity who
purchased goods or services from the Corporation or its subsidiaries within one
(1) year before the termination of the employment of the Employee under this
Employment Agreement; (iv) the Employee shall not have any financial interest,
or participate as a director, officer, stockholder, partner, employee,
Page 7
<PAGE> 8
consultant or otherwise, in any corporation, partnership or other entity which
is competitive with any business or activity conducted by the Corporation.
(b) The Corporation and the Employee agree that the services of the
Employee are of a personal, special, unique and extraordinary character, and
cannot be replaced by the Corporation without great difficulty, and that the
violation by the Employee of any of his agreements under this Section (10) would
damage the goodwill of the Corporation and cause the Corporation irreparable
harm which could not reasonably or adequately be compensated in damages in an
action at law, and that the agreements of the Employee under this Section (10)
may be enforced by the Corporation in equity by an injunction or restraining
order in addition to being enforced by the Corporation at law.
(c) In the event that this Section (10) shall be determined by any
court of competent jurisdiction to be unenforceable by reason of its extending
for too long a period of time or over too great a range of activities, it shall
be interpreted to extend only over the maximum period of time or range of
activities as to which it may be enforceable.
(11) NOTICE: Any and all notices under this Employment Agreement shall be
in writing and, if to the Corporation, shall be duly given if sent to the
Corporation by registered or certified mail, postage prepaid, return receipt
requested, at the address of the Corporation set forth under its name below or
at such other address as the Corporation may hereafter designate to the Employee
in writing for the purpose, and if to the Employee, shall be duly given if
delivered to the Employee by hand or if sent to the Employee by registered or
certified mail, postage prepaid, return receipt requested, at the address of the
Employee set forth under his name below or at such other address as the Employee
may hereafter designate to the Corporation in writing for the purpose.
(12) ASSIGNMENT: The rights and obligations of the Corporation under this
Employment Agreement shall inure to the benefit of, and shall be binding upon,
the successors and assigns of the Corporation. The rights and obligations of the
Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, the heirs, executors and legal representatives of the
Employee.
(13) ENTIRE AGREEMENT AND SEVERABILITY
(a) This Employment Agreement and the MKS offer of employment letter
Page 8
<PAGE> 9
dated March 10, 2000 (and the documents referenced herein) supersede any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the employment of the Employee by the Corporation and contain all of
the covenants and agreements between the parties with respect to such
employment. Each party to this Employment Agreement acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or any one acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Employment Agreement or referenced herein, or as amended, shall be valid
and binding. Any modification of this Employment Agreement will be effective
only if it is in writing signed by both parties to this Employment Agreement.
(b) If any provision in this Employment Agreement is held by a court
Of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way.
(c) All pronouns used herein shall include the masculine, feminine,
and neuter gender as the context requires.
(14) GOVERNING LAW: This Employment Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of The Commonwealth
of Massachusetts without reference to conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have executed, in the Commonwealth of
Massachusetts, this Employment Agreement as a sealed instrument, all as of the
day, month and year first written above.
MKS INSTRUMENTS, INC.
By: /s/ Peter Younger
---------------------------------------
Peter Younger
President and Chief Operating Officer
6 Shattuck Road, Andover, MA 01810
/s/ Donald Smith
---------------------------------------
Donald Smith
Address: 10 Village Hill Rd.
----------------------------------
Belmont, MA 02478
Page 9
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